In November of 2000 when the NASDAQ was trading at 3000 I wrote in this column that the NASDAQ Index would fall to 1500 and I got lots of heat for saying it. Microsoft had fallen from $129 to $60 per share. You know where they are today.

The talking heads on CNBC-TV and many of the radio stock experts are convinced we are headed back up as soon as this small “correction” is over – and they could be right, but I seem to remember their former predictions just before the major stock indexes went over the edge of Financial Niagara Falls. Can it happen again since the market has fallen so far?

For a year the DOW has been creeping higher. The NASDAQ has gained back about 40%, but please remember the NASDAQ Index is not composed of the same stocks as it was 3 years ago and neither is the DOW. Many companies went bankrupt and others have been delisted because they do not meet the criteria to remain on the board.

Too many investors have not done their homework. Most of them only know the great bull market of 1982 to 2000. The same goes for brokers. Almost none have ever seen a bear market. I call the mutual fund managers ‘children’ because most of them were in diapers during the last bear of l972-74 and they discount the sudden break of 1987 as an aberration. What it amounts to is they have no idea of what to do when the brown stuff hits the fan.

It is a shame that brokers are not taught the basics of how to protect customers’ money and same goes for mutual fund managers. Scores of mutual funds went out of business during the last break and others were absorbed by their big brothers in large fund families.

The market rarely crashes as it did in 1987 and usually erodes away as it did in 1972-74. Current investors have never been told about secular bull and secular bear markets that last about 16 to 18 years in each direction. During those down or at best sideways periods investors are happy to break even. This is a historical fact that you can check back for a hundred years.

If we are in this 16 years down that started in 2000 do you have a plan as to what to do to protect your financial well being? Most people don’t and they refuse to accept the idea that anything like another loss of 80% can occur. Brokers don’t have a plan. Fund managers don’t have a plan. Do you have a plan? If you don’t it is time to start thinking how you can protect what you have now. The most important thing about any investment is not to lose money.

The market today has the potential for another 2000 break. Now is the time to protect your investments. Get your stocks and mutual funds out and if you have any that have lost more than 10 or even 20% from their highest price it would be wise to sell them and remain in cash. NASDAQ 800 may not be far away.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005

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